Author: IOSG Ventures
1. What does Stripe's largest acquisition of Bridge mean for the cryptocurrency industry?
Stripe is one of the largest online payment service providers and processors in the world, helping businesses accept online and in-person payments through its developer-friendly API. In 2023 alone, Stripe processed over $1 trillion in transaction volume, ranking second only to Apple Pay in adoption.
Last month, Stripe made a major acquisition by acquiring the stablecoin platform Bridge for $1.1 billion, marking the largest acquisition in cryptocurrency history.
Recent cryptocurrency M&A activities, such as Robinhood's acquisition of Bitstamp for $200 million, are beginning to reflect the growing demand from tech/finance giants to engage with 2B and 2C cryptocurrency businesses that prioritize compliance and have established user bases. Bridge is no exception.
You may have noticed that the adoption of stablecoins is surging globally. According to a16z's report, the trading volume of stablecoins reached $8.5 trillion in Q2 2024, more than double the $3.9 trillion of Visa during the same period.
Stripe believes that stablecoins have the potential to be the perfect medium for a smooth and efficient asset conversion process. Although Bridge generates only $10 million to $15 million in revenue per year, Stripe paid nearly 100 times the premium to acquire the company. This highlights that Stripe's motivation is not only related to Bridge's current revenue but also to the compliance, partnerships, and technology that Bridge can bring to the Stripe ecosystem.
2. What is Bridge?
Bridge is a stablecoin platform that allows businesses or users to transfer tokenized dollars using blockchain. Users can wire/ACH transfer to whitelisted banks, purchase cryptocurrency with fiat, or sell cryptocurrency for fiat by sending assets to designated wallets. It also provides custodial wallets to help businesses accept, store, or transfer stablecoins through a simple set of APIs.
In the background, Bridge handles KYC, regulatory compliance, etc., enabling businesses to easily integrate and start accepting cryptocurrency as a payment method. Currently, Bridge supports USD/EUR as fiat currency payments and accepts five stablecoins across nine different chains.
Regarding the team, Bridge founders Zach Abrams and Sean Yu previously worked at Coinbase, serving as Head of Consumer Products and Senior Developer, respectively. Before being acquired, Bridge raised a total of $58 million from various venture capital firms, of which approximately $40 million came from Sequoia Capital. This indicates that investors were already confident in the product before the acquisition.
2.1 Advantages and Moat of Bridge:
Bridge is not the first product to address the issue of cross-border transaction services. In fact, Ripple (XRP) has been providing cross-border transfers and payment services for the past three years, but it relies on its own currency as a medium, exposing users to currency downside risks. However, in an era where regulated stablecoins like USDC provide greater protection and flexibility, such solutions have become outdated. Bridge addresses this issue more efficiently and compliantly.
2.2 Compliance and Collaboration
Bridge's advantages lie in its compliance and partnerships. Firstly, according to a report by Sequoia, Bridge complies with all U.S. and European financial regulations and anti-money laundering laws, holds remittance licenses in 22 states, and collaborates with the U.S. State Department and Treasury for asset transfers. Before integrating with Bridge, businesses need to provide ownership and incorporation documents to prove their credibility. For details, please refer to the following documents: As pointed out by Story Protocol founder SY Lee, content enterprises often lack network effects, which forces them to rely on large content creation and marketing budgets to survive. This overwhelming negotiating power makes it difficult for smaller IPs to be profitable, often leading to their failure before launch. Even large IP studios hesitate to develop new IPs, choosing instead to focus on expanding existing IPs.
The credibility and reputation that Bridge gains from compliance will significantly improve and expand its business channels, as evidenced by their recent collaboration with SpaceX, where Bridge will be used for stablecoin management in its global financial operations (source: Ledger).
In addition to compliance, Bridge also allows businesses to customize and issue stablecoins using Bridge's orchestration API, with the underlying dollars invested in U.S. Treasury bonds to yield 5% or kept idle. This provides possibilities for businesses and even CBDCs to create and customize their tokenized dollars for various use cases while remaining compliant, with all reserves held in cash and treasury bills within Bridge.
2.3 Use Cases of Bridge:
2.4 In today's payment solutions:
The global demand for electronic payment solutions is rising, with the electronic payment industry expected to grow at a rate of 9.9% annually, reaching a market size of $90 billion.
Today's digital payment solutions, especially in the U.S., charge transaction fees of up to 1.5-3.5% (Visa charges 1.5-3.5%, Stripe charges 3.4%, and the European cap is ~0.3%, with global payments like PayPal capped at ~2%).
Bridge's transaction fees are expected to be much lower, as they primarily consist of blockchain transaction fees and developer or issuer fees.
In October, Stripe launched a feature called 'Pay with Stablecoins' in its customer checkout products, charging a 1.5% transaction fee. While it has not been confirmed whether this feature was co-created with Bridge or if the fee was designed by Stripe, it indicates that Bridge has the potential to provide a more cost-effective option for digital payments as an alternative payment solution.
Moreover, data breaches have been a long-standing issue in the traditional electronic payment industry. The tamper-proof properties and security of smart contracts can effectively address these problems. In addition to saving costs, Bridge also unlocks access to the $180 billion liquidity of stablecoins in the blockchain ecosystem, allowing Stripe to extend its influence into the cryptocurrency market.
In unbanked regions:
Bridge can provide solutions for underserved businesses in regions by allowing them to hold dollars or euros in custodial wallets, thus building better systems for remittances, payments, or investing tokenized dollars based on their needs.
Additionally, financial institutions can start offering more complex structured products, accepting stablecoins as deposits, creating more business opportunities for them to leverage on-chain funds.
Since these transactions occur on the blockchain, the selected chains can also benefit from the associated transaction fees. Thus, Bridge can enhance on-chain transaction activity and potentially increase returns for validators and stakers.
In DeFi:
Businesses can also participate in DeFi to earn additional yields. For example, they can borrow or lend tokenized dollars on platforms like Aave to earn interest or leverage cryptocurrency investments for potential returns.
Alternatively, users can provide liquidity for stablecoin pairs on Uniswap V2/V3 to earn trading fees. While DeFi investments carry significant risks, they offer opportunities to maximize the capital efficiency of idle assets.
Given the dominance of USDC and USDT in the market, I believe Bridge's integration can further solidify their roles in the evolving cryptocurrency landscape.
3. Market Outlook
Until recently, the use cases for cryptocurrency were largely hindered by its adoption as a payment solution. However, Stripe's acquisition of Bridge has the potential to change this trend, making cryptocurrency payments as seamless and indistinguishable from traditional fiat currency transactions, and could become a pillar of future PayFi.
The largest merger and acquisition in cryptocurrency history highlights that stablecoins and the regulated payments industry have already achieved significant product-market fit and undeniable utility. Value transfer remains the most compelling use case for cryptocurrency, and regulated stablecoins are becoming the primary medium for payments.
4. Key Points
Bridge is a stablecoin platform that enables businesses and users to transfer, store, and pay with tokenized dollars using blockchain technology. Bridge manages all compliance and regulatory issues in the background.
Bridge's advantages lie in its compliance and established partnerships. It complies with all U.S. and European financial regulations and anti-money laundering laws, and collaborates with reputable partners such as the U.S. State Department and Treasury.
Regions that lack direct access to the financial system can benefit immensely from Bridge due to the economic security provided by the dollar.
Businesses can now participate in DeFi and maximize the capital efficiency of idle assets. Bridge acts as a bridge to inject more capital into stablecoins, which is expected to boost the overall DeFi economy.
Lower fees, faster settlement, and data security are some of the main advantages of blockchain compared to today's electronic payment solutions. Bridge has the potential to replace or serve as a better alternative to current payment systems.
